Home insurance premiums rise by 10% in a year to £329 – are prices likely to rise further?

Homeowners are coping with a 10 percent increase in their home insurance premiums – with further increases likely.

According to the Association of British Insurers, the average insurance premium for buildings and contents rose by 10 percent in a year to £329 in the second quarter of 2023.

This is because insurers are passing on sharply rising claims costs, according to the ABI.

The industry body said home insurers are now paying out around £8.6 million in claims every day. The typical claim over this period was £4,300, an increase of 24 per cent.

It’s breaking out: Insurers said a rise in subsidence claims was a key reason for the premium increases

The increase is due in part to a rise in subsidence claims following last summer’s record-breaking heat wave, which took time to investigate and resolve.

Subsidy payments totaled £54 million in the period, a 21 per cent increase on the £45 million paid in the second quarter of 2022.

Around £782 million was paid out for claims arising from fire, theft, weather, water leaks, subsidence and accidental damage.

Mervyn Skeet, general policy director at ABI, said: “Home insurance continues to do what it says on the tin: supporting customers when the worst happens.”

“For most people, the house is not only the roof over their heads and the family home, it is also their most valuable asset, which could be at risk without the protection of home contents insurance.”

“These latest figures show that despite rising claims costs, insurers are continuing to do everything they can to offer cover at competitive prices to British households.”

Will home contents insurance premiums continue to rise?

Overall, home insurers are paying out more claims than they collect in premiums – and that was the case in the three years up to 2022.

Even between April and June this year, premiums increased by 10 percent while claims payments increased by 21 percent.

So the obvious question is: do insurance costs need to continue to rise to close this apparent black hole in insurers’ finances?

At first glance, this seems likely, although the ABI will not speculate on it.

An ABI spokesman said: “Individual insurers will make their own commercial decisions about pricing and we cannot speculate on this.”

However, individual insurers may be able to keep premium increases low because their finances are in better shape.

First, most insurers actually still make money from underwriting – the careful balance between the premiums they charge and the claims they pay out.

For example, Aviva, the largest home insurer, made a hefty profit from underwriting last year, according to its 2022 financial statements.

The insurer’s combined operating ratio (COR) in general insurance was 94.6 percent in 2022, meaning it made money.

However, the second-largest home insurer LV’s COR was 110.3 percent in 2022, meaning it lost money.

However, the CORs of both insurers not only cover household contents insurance, but also insurance areas such as cars and travel.

COR also doesn’t take into account other ways insurers make money, such as investments and fees.